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Friday, November 18, 2011

Disturbing News - ECB and Congress broken

This week has been particularly disturbing on the news front. To sum it up, my faith in politicians and fat cat executives who run our financial system has been pretty shaken.

There are three unique pieces of news that I have stumbled across which are just simply appalling to read. Certainly, any hope for a quick resolution to the world's financial problems isn't going to come anytime soon and the entire economy is up for grabs as the dark clouds of recession hang over Europe.

So let's take a look at these three items:[1] Double Standards for CongressStarting with the most extreme and disturbing proof of what a lot of us have suspected for a while. It won't come as any great surprise to many of you but in consideration of what the finance sector has gone through in the US, particularly over the last couple years, definitelyin the theme of the Occupy Wall St movement and so many other economic considerations out there, the double standards of congress have finally become morally detached from reality. A 60 Minutes program has gone out to expose this barren Makavelian domain and shows the very people that represent the government for what they truly are.

What am I talking about?

Wait for it - Congress is Corrupt! - Oh come on Marty I hear you say, tell us something we don't already know. Everyone laughs, smiles, winks, a few glances from the insane peanut gallery and the rest go back to their knitting.

Just watch the video below and a whole new world of insider trading will open up for you. I don't want to ruin the story by telling you how it ends but apparently there are vacancies to be filled in congress for anyone who has a good background in Political Intel. Oh yes, insider trading may put you in jail in the real world but in the political zone, insider trading is a sought after vocation with great career prospects.

Video will refresh shortly (please be patient) | 60 Minutes

This came to me through a dear colleague's blog, the IMackGroup and I recommend taking a look at her site by clicking on the IMackGroup link.

So what else is news and what do I have for you? Well, let me look through my bag of tricks-Ahh yes tricks, these banks are up to their good old tricks again.

[2] Banks up to their old tricks

A letter to the FT from a finance director in Barclays puts many banks accounting disclosure in the spotlight yet again. International standards and fair accounting rules haven’t really been that fair it seems and if the letter from Chris Lucas is anything to go by, then we can assume the games will continue.

To comply with the FT strict copyright policy, I have linked to the article here rather than quoted from it. You can sign up with the FT directly to peruse further.Sharlene Goff | Financial Times

In effect the banks have been caught out adjusting their earnings to reflect the current price at which they buy back their own market debt. It is a strange scenario where the bank’s capital requirements rise along with their profits but these profits are strangely being driven by the market deteriorating. So as an investor, you need to watch out for the profits banks are currently reporting because the numbers are synthetic this time round.

The FT lists the respective UK banks as making a £10 billion one off credit mark-to-market gain from this process and the US banks are doing the same with about a $16 billion rise in net profits for the last quarter.

Next year if the market flattens or improves, you are likely to see a reversal of this trend and in an odd unpleasant twist, banks synthetic profits will drop. If the banks are able to increase their sales volume proportionately and grow those volumes between now and then, theoretically no one will be the wiser.

[3] The ECB has lost the plot

Finally we can confirm that our dear friends at the ECB have lost the plot and there is a serious lack of priorities in that bank.

Europe is falling apart, several sovereign nations are moving to a point where they are unable to turn over their debt or fund it, banks across the planet have massive write downs on issuer risk and are in effect under-capitalised, one of those banks (Dexia) failed only a few weeks ago, two countries have suspended their governments, ousting their prime ministers' and pretty much everything except for Germany is up for a downgrade.

So what does the financial guardian plan to do - Write software games for mobile phones.

This is economically obscene and a bit perverse but none the less, enjoy the Finextra post on the ECB Mobile Phone Game.

1 comment:

Always interesting reading your blog. For what its worth I think I have isolated the central problem with the European Central Bank....its that its European.

As for the US banking system would someone please confirm whether the US Federal Reserve stills gets its guaranteed 6% return from lending money it is able to print. I am sure there is more to it than that but is that sound business model still in tact? Love to see a Blog on that Marty !

Author

Martin Davies is a risk framework architect with strong domain knowledge across a diverse set of risk fraternities, a background in banking front-to-back and the ability to articulate business requirements into functional information technology concepts. He is focused on structured products for emerging markets and works with several tier one banks, regulators and brokerages across South East Asia.